Call for care on tax changes
New Zealand needs to be careful not to get out of step with the rest of the world in implementing tax changes on multinational companies seeking to minimise their tax obligations, Deloitte Dunedin tax partner Peter Truman says.
The Government this week released a report on Base Erosion and Profit Sharing (BEPS).
The OECD and the G20 had been working on a range of issues which fell into that category.
Practices identified included shifting profits to countries that had lower, or even nil, tax rates on profits.
Some avoided domestic consumption taxes, like GST, by through supplying goods and services from offshore – internet content delivered electronically from outside of New Zealand.
Netflix and Apple were two companies which sold products into New Zealand but avoided paying GST on those transactions.
Globally, Google was under investigation for hiding tax.
Mr Truman said much of the existing international tax framework was developed at a time before the advent of the digital economy and the rise in the level of international trade and multi-national companies.
”The framework was overdue for updating to keep in touch with a changing world.”
Member countries had been working to develop a consensus over the past two years and had identified 15 actions that required further detail, he said.
The OECD/G20 advisory group estimated BEPS had cost between 4% and 10% of annual corporate tax revenues.
In comparison to other countries, New Zealand was able to get legislation changes through Parliament reasonably quickly, Mr Truman said.
”In our view, New Zealand needs to be careful not to get out of step with the rest of the world by implementing changes too quickly as some countries are not as enthusiastic about some of the proposed changes.
”If we move too fast, we risk other countries not following, which will affect our international competitiveness.”
Some of the BEPS actions dealt with issues covered by double tax treaties, including the definition of a permanent establishment and measures to prevent treaty abuse, he said.
Companies took advantage of mismatches between the domestic tax laws applying in particularly country by structuring a payment flow which was deductible interest in one country but treated as tax-exempt in another.
The adoption of proposed changes would depend on whether countries signed up to a multilateral agreement set to be negotiated in 2016, or whether the changes were picked up in various forms over time as bilateral treaties were individually negotiated, Mr Truman said.
Finance Minister Bill English and Revenue Minister Todd McClay said in a joint statement no decisions had been made by New Zealand on implementation or timing and that any changes would be subjected to the usual public consultation programme.
Mr Truman said the Government had previously signalled BEPS policy work was a priority and it was a certainty changes would be made to domestic law in some areas.
